Germany's Flirtation with Rebound
Is Smashed by a Stunning September Order Dropby Robert
Brusca November 6, 2008

German officials have officially ended their excursion trip
with optimism. During their journey through fantasy land, they did take
their turns in showing how wrong they can be. From the start of the US
slowing, they thought Europe had decoupled and that the euro could
continue to rise with little ill effect on the Zone. When the other
e-Zone countries were affected they said Germany was different. When
the banking crisis hit the US they said German banks were strong and
did not have these sorts of problems. Recently they had believed
Germany was going to be so much less affected by the growing recession
in Europe as policymakers announced that Germany was better prepared to
meet the crisis. And so it may be. And we shall find out because ready
or not here it comes.

The pop in orders in August may have errantly encouraged the
belief that Germany was wearing some sort of special recession-proof
vest. But now Super-Germany has met its Kryptonite. The Sept plunge in
orders of -8% is the largest drop since German unification and has
swept optimism aside. Germany is now, after all, just another European
country with an economy under pressure, not a special case

Moreover a perusal of the trends makes is crystal clear that
this downturn has been building for some time. Optimism in retrospect
looks a bit like whistling past the graveyard. August’s orders gain was
a rogue rise of 3.5% sandwiched in between drops of 1.7% in July and
now 8% in September. The sequential growth rates get progressively more
negative from -9% over 12 months to -12% over six months to -23% over
three months. Similarly the foreign and domestic orders show the same
progressions.

Germany is getting pulled down more by weakness from the
outside. So, in some sense, it is true that Germany has been faring
better. But in good times German export orders boomed beyond the reach
of domestic orders as well. Germany is simply a lower growth more
stable economy than the world in which it trades. Yet weakness abroad
will weigh on Germany just as a global boom will boost it. Because
Germany is plugged into that trading system, it shares the good and bad
times with the world it exports to. There is nothing unusual about that
or about the effect of that on Germany in this cycle.

The German industrial sales figures underline the issues.
German sales are showing the same sort of progressive declines. For a
while Germany was growing better than its trading partners because it
deals a lot in capital goods. One year ago German capital goods growth
rates rose 8% Yr/Yr while overall German sales rose by just 5.8%. But
in September German capital goods orders are being crushed. They are
falling by 5.2% in Sept alone. Their three-month pace of contraction is
-14.4% rivaling the 15.5% drop in the usually volatile sales of
consumer durable goods.

Germany has been caught in the same web of weakness that all
of Europe is in. Today’s industrial orders report combines with the
week’s earlier reports from the MFG and Services sector purchasers data
from Markit to show that weakness is spreading in Germany as well as
across the e-Zone.

Germany is in the soup along with the rest of Europe although
it may be submerging at a slightly slower rate. There can be little
doubt that Germany, like the rest of Europe is submerging. Down
periscope.